I’m looking at a 31 unit with double the open land to expand. The deal seems too good to be true so I’m wondering what I should do differently for a mobile home park in terms of due diligence?
Do I calculate my numbers different to a typical buy and hold?
Are there special factors within mobile home parks that I should be aware of that would make it a bad investment?
There are many factors to evaluate
For a quick evaluation you would take the # of units paying x lot rent x 12 months x .6 expenses for park paying utilities or .7 expenses for tenants paying utilities then divide that by purchase price to get the going in cap rate. Tons of info on this platform and mobile home university. I wouldn’t give much value to the vacant land unless it has another use that can be subdivided.
A few key things to consider are below. Please also consider reaching out to @Ian Tudor and Ryan Narus from Archimedes Group. They have an excellent due diligence checklist that helped us augment our acquisition process.
-> Zoning: Make sure your land is zoned for MH and that expanding the lots on the new land will not threaten the zoning status.
-> Infrastructure: Watch out for lagoons and waste water treatment plants in small parks. We walk away from those. If the water and sewer are supported by well and septic, respectively, make sure you have them inspected by licensed operators. Ensuring that water and sewer infrastructure is in working order and not subject to major deferred maintenance is critical for small parks.
-> Demand: Make sure there is demand for the new lots but running test ads at the pro-forma rental rates. You’re looking for 7-10 inquiries per week.
Thank you! Learning everyday here.
Thank you! Very good info.
@Michael J Scanlon if you are not familiar with mobile home parks and are serious about acquiring one, I would recommend getting a solid foundation of education before you jump in. Consider taking Frank and Dave's course at MHU or a similar course. Those are several days in length and will give you exposure to all the complexities of buying, managing, and improving a park.
As it relates to your question, I would agree with the comments above and would not give much value to additional land. The cost to develop the sites, move in homes, set them up, and sell them doesn't ever make much sense. You will want to evaluate a park based on the existing sites and the income that is being produced today.
Thanks Jack. I am definitely going to make that and j. Scott’s book on estimating rehab my next set of books I read (always do two at once).
I definitely don’t know enough but I know the valuation was so low (but it very quickly went under contract unfortunately).